The Golden Age of The Big Pension Check Is a Myth: ICI

Forget the myth of the big pension check in the days before 401(k) retirement plans: More people get more retirement money from employer plans today.

More than a third of retirees and their spouses last year were receiving income from an employer retirement plan, up from 21% in 1975, when 401(k) plans were first introduced, according to the Investment Company Institute.

The median income they received also rose a bit, in 2009 dollars, from $4,500 in 1975 to $6,000 today.

Old-style pensions didn’t benefit as many people as you’d think. Social Security has been the basis of retirement security all along.

“Contrary to conventional wisdom, private-sector pension income has become more prevalent, not less prevalent, over time,” Peter Brady, the ICI’s senior economist and co-author of the report, said in a press release.

Since 1975, private company coverage has shifted from defined-benefit pension plans to 401(k) plans, but pension rules worked against employees who changed jobs, with the result that many workers didn’t get much money.

"There seems to be a belief that there was a golden age of pensions—a time in our history when most private-sector workers retired with a monthly pension check that replaced a significant amount of their salary. The facts support a different narrative: there was no golden age,” Brady said. “The good news is private-sector retirement income has increased over time.”

In the same time period, Social Security benefits have remained the biggest piece of retiree income for all employees, not just those with lower incomes. Last year, Social Security benefits made up 58% of total retiree income and more than 85% of income for retirees in the lowest 40%. Even for retirees in the highest income quintile, Social Security benefits represented more than one-third of income last year.

Defined benefit pensions are increasingly less common and today, are less than 80% funded, on average, according to a variety of reports. Meanwhile, the Pension Benefit Guaranty Corporation said that it expected its deficit to skyrocket by nearly “five times” to $4 billion within the next decade. The agency expects to pay billions of dollars to pensions that have already run out of assets or dwindling.